Belgium Clearing Legal Issues to Pave Way for Inflation Bonds

By Anchalee Worrachate -
Jan 22, 2013

Belgium is in the process of
resolving tax issues for its first sale of inflation-protected
bonds, according to a director at the debt agency.

The government will need to clear “legal hurdles” on tax
computation for local individual investors before the securities
can be issued, said Anne Leclercq, director for treasury and
capital markets in Brussels. This won’t affect institutions who
aren’t liable for Belgian withholding tax, she said, adding it’s
not yet clear when any sale would go ahead.

“We’re serious about introducing the new product but
before we do we need to make sure that all legal elements are
well covered,” Leclercq said in a telephone interview. “We
would like to be able to offer it once the issues are cleared,
provided the market conditions are favorable. It’s difficult to
give you an idea of when this will be resolved because it’s not
our direct responsibility.”

Belgium plans to sell 40.5 billion euros ($54.1 billion) of
debt this year, compared with 48 billion euros in 2012. A total
of 37 billion euros will be sold under its conventional bond
program and 3 billion euros under its so-called Euro Medium-Term
Note program. The remaining 500 million euros will be in retail
bonds, Leclercq said.

The inflation-protected bonds will also be issued as Euro
Medium-Term Notes, Leclercq said. The EMTN program was started
in 2008 and gives the debt agency flexibility for raising cash
when funding costs are cheaper than for regular bonds. The
agency has previously sold foreign-currency and floating-rate
securities under this program.

First Sale

Belgium has sold 4 billion pounds of regular bonds and 200
million euros of EMTNs this year, Leclercq said. The central
government hasn’t yet offered inflation-linked securities.

Belgian government bonds returned 17 percent last year,
according to indexes compiled by Bank of America Merrill Lynch.
German bunds gained 4.5 percent and French securities rose 10
percent, the indexes show.

Germany, France, and Italy are among euro-area nations to
conduct regular sales of inflation-protected bonds. The
securities allow retirement savings to keep pace with any
increase in consumer prices as the principal and coupon payments
are linked to an inflation index.